By Ronald J. Hansen The Republic | azcentral.comTue Oct 22, 2013 5:06 PM
Facing declining enrollment and as it transitions to more online-only services, the parent company of the University of Phoenix announced Tuesday it is laying off 500 workers around the country.
The shakeup largely affects career services that had been handled by non-faculty staff and those who helped develop new online studies in the increasingly crowded higher education field, said Mark Brenner, chief of staff to the CEO of the Phoenix-based Apollo Group, which is the parent of the University of Phoenix.
Brenner declined to say how many jobs were lost in Arizona or any state. The latest layoffs follow the 800 jobs eliminated in cutbacks announced in October 2012, when the school was rocked with a barrage of negative government reports on its recruiting practices and the academic prospects of its students. With additional departures, the company’s work force lost 3,000 employees over the past year and is shedding another 4 percent, he said.
The latest layoffs at the largest for-profit university in the nation came as the publicly traded company announced that net income fell 71 percent in the previous quarter compared to the same period a year ago, in large part because of restructuring costs. Enrollment fell 18 percent over the past year to 269,000. The company expects to further cut its operating costs by at least $300 million, according to filings with the Securities and Exchange Commission.
“This is definitely a period of transition for Apollo,” Brenner said, adding that it is expanding its global operations into India and the United Kingdom. “We are confident that we are the right-sized organization for the student population we are going to serve in fiscal 2014.”
Among the changes rolled out Tuesday, the company plans to change its name to the Apollo Education Group to better reflect its mission.
The moves generated applause from those who see the company as an investment and indifference from those who see it as hindering education.
“The numbers that came out were much better than expected. Frankly, expectations have been so low for so long that any sort of positive sentiment turns things around pretty quickly,” said Steven Azarbad, portfolio manager for Maglan Capital, a New York-based hedge fund that focuses on troubled companies. It bought a “few hundred-thousand shares” of Apollo this summer.
“They’re chopping the cost side of things,” Azarbad said. “That’s good for the company. Over time, their top line should stabilize. ... This is definitely a step in the right direction.”
Barmak Nassirian, director of federal policy analysis for the American Association of State Colleges and Universities, sees the changes as reflecting the reality that Apollo’s chief priority is profitability, not education.
“This is fairly predictable corporate behavior,” he said. “If the revenue strategy doesn’t pan out, the only other way to keep investors happy is to cut costs. It’s not their preferred strategy, but that’s their response to disappointing enrollment figures and revenue numbers.”
Going forward, Nassirian said, an improving economy can make recruiting harder, and the university faces threats from other for-profit companies as well as more-trusted public institutions that can offer similar services, often at a better price.
The university’s cutbacks coincide with the imposition of new rules, some enacted by the federal government, and others by the university itself in the wake of unflattering disclosures about its academic and financial performance. Ninety percent of Apollo’s revenues come from the University of Phoenix, and 83 percent of the school’s tuition revenue is from federal financial aid for its students.
In July, the university, along with Western International University, another Apollo property, secured continued accreditation, without which they couldn’t continue to tap the federal funding.
The 10-year approvals, however, included requirements that the schools show greater near-term independence from Apollo and must improve assessments of whether students are learning class goals and show more robust scholarship among faculty and doctoral students. In a filing with the SEC at the time, Apollo acknowledged the accreditation issue “could adversely impact our business.”
The University of Phoenix has been looking for a president since the September announcement that Bill Pepicello was stepping down after seven years.
For years after its 1994 debut on the Nasdaq, Apollo was seen as a fast-rising stock. In January 2009, Apollo’s stock traded for more than $89 a share and had actually risen throughout the Wall Street meltdown that began in September 2008.
Since then, however, the stock has plummeted nearly 75 percent. In the past year, it has hovered near $21.
A scathing two-year Senate investigation of for-profit education helped mark a turning point for Apollo.
It pointed out in 2012 that an online degree from the University of Phoenix cost six times more than a comparable degree from the Maricopa Community College system and that the university’s founder, John Sperling, was paid $8.6 million in 2009, 13 times more than the president of the University of Arizona.
That year, Apollo spent $892 per student on instruction, $2,225 per student on marketing, and $2,535 per student went to company profit, a Senate report found.
In a response to the report in The Hill, Brenner maintained the university’s goal “has always been to provide a quality, flexible, rigorous and relevant education. Our interest in a student's ability to graduate begins even before they enroll.”
Separately, he said “much of the report is designed to cast schools, including University of Phoenix, in a negative light.”
Even as his university foundered, Sperling retired as chairman of Apollo’s board of directors in December with a $5 million bonus and a $70,000 monthly annuity.
Apollo’s stock rose 2 cents to $20.94 during regular trading and was up sharply in early after-hours trading Tuesday. The company’s stock has generally risen since it secured continued accreditation this summer.